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Seneca ‘monitors’ Patient Capital hit after Bell boost

20 June 2019

Fund managers at Seneca Global Income & Growth keep an anxious eye on Woodford Patient Capital Trust as they hope its plunging share price does not offset any more of the impressive gains made on AJ Bell.

Fund managers at Seneca Global Income & Growth (SIGT) are keeping an anxious eye on Woodford Patient Capital Trust (WPCT) as they hope its plunging share price does not offset any more of the impressive gains made on AJ Bell (AJB) since the stockbroker’s flotation seven months ago.

Similar to rival Capital Gearing (CGT), the defensive £85 million Seneca trust uses holdings in other funds to gain exposure to overseas and specialist markets.

In its latest annual results, the managers revealed they had to sell half of a holding in AJ Bell, wpreviously bought from fund manager Neil Woodford, when it floated in December. They decided to invest some of the gains in his Patient Capital trust, whose shares were trading 16% below net asset value at the time and did not reflect, they felt, the underlying progress the portfolio of largely unquoted healthcare and biotech stocks was making.

By the end of April, the trust held 1.4% or £1.2 million of its assets in WPCT. However, in the past month the shares have lost over a third of their value as investors have dumped the stock, fearful of the impact of the suspension of the £3.5 billion Woodford Equity Income fund, which shares many of its holdings.  

The shares yesterday closed at 53.8p, a 38% discount to their estimated NAV of 87.1p, reflecting the uncertainty over the valuations of its holdings as the Financial Conduct Authority steps up its investigation into Woodford's investment firm and Link Fund Solutions, the adminstrator of both the suspended fund and Patient Capital.

‘Acknowledging the fast-moving developments with the Woodford business, we are monitoring this investment closely and are in regular contact with Woodford Investment Management and the board of Woodford Patient Capital Trust,’ Seneca Investment Management said. 

Fortunately, the souring of the Patient Capital stake has been more than offset by handsome gains from its position in AJ Bell.

Despite the half-disposal of its original £2.9 million holding, which saw Seneca have to sell shares alongside AJ Bell founder Andy Bell and fund group Invesco, the broker has become the trust's biggest position after a strong market debut. 

Since listing in early December at 160p, the shares have soared 142% to 387p today. At the end of April, the stake was worth £6.7 million or 7.3% of the trust.

The trust's overall unrealised capital return is much higher than this - at a whopping 367% - because the shares were originally valued at 86.5p.

‘Sadly, AJ Bell is very likely to be a one off,’ said Seneca Investment Managers. ‘We do not as a general rule invest directly in unlisted investments, though anything that did happen to come our way would almost certainly not be as successful an investment as AJ Bell.’

Like other trusts in the Association of Investment Companies' Flexible Investments sector, Seneca Global Income & Growth invests in a range of assets in order to achieve real growth in capital and income with far less volatility than conventional equity-only funds.

Even with the inclusion of AJ Bell, it reduced UK equities to 32% during the year held in around 20 stocks. These included struggling construction group Kier (KIER), also a Woodford favourite, which shaved 1% off returns and accounted for 1.5% of the portfolio at the end of April, although its shares have tumbled since then as concern over its financial position has grown.

A further 22.5% was held in overseas equities, excluding the US, which the managers deem too expensive. They hold 28.6% in specialist assets including property, where Custodian (CREI) real estate investment trust was sold and replaced by Hipgnosis Songs (SONG). That left 11.5% in fixed income and bonds.

Speaking before the results, Seneca chief investment officer Peter Elston said the trust had opened a position in gold through Investec Global Gold  fund and the Invesco Physical Gold exchange traded commodity.

‘Gold is often a good hedge against geopolitical risk whether that’s trade wars or North Korea or Iran, but that's not why we've bought it,’ said Elston. ‘We bought it as essentially a hedge against central banks debasing currencies and we're probably expecting to have a decent exposure to gold for the next three to four years, until the end of the next downturn.’

The annual report shows that in the 12 months to April SIGT grew net asset value (NAV) by 7.6%. This was slightly less than the 8.2% of its benchmaark, which is to deliver 6% over the annual rate of inflation as measured by the consumer prices index (CPI). It fared quite well against stock market indices, beating the 2.6% from the UK's FTSE All-Share index, for instance.

Shareholders received a total of 6.6p per share in quarterly dividends, up 3.4% on the previous year and fully covered by earnings of 7.5p per share. The board is maintaining a quarterly target of 1.68p, giving the shares a prospective yield of 3.8%.

Since adopting a more cautious strategy in January 2012 until 30 April this year, SIGT achieved nearly 102% growth in NAV, while its shares, boosted by a more recent zero discount policy, returned 132%, both well ahead of the 40.5% from its inflation-linked benchmark. 

Read our March 2017 profile of the investment trust from Investment Trust Insider's e-zine. 

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